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There’s almost zero rationale for Arctic oil exploration

There’s almost zero rationale for Arctic oil exploration thumbnail

Drilling the Arctic region for oil cannot be justified against the background of the major shift in the global oil production paradigm, Goldman Sachs’ lead European commodities equity specialist said on Thursday.

“Overall the idea that we have to go into the Arctic to find new resources I think has been dispelled by the enormous cheap, easier to produce and quicker time-to-market resources in the Permian onshore U.S.,” Michele Della Vigna, commodity equity business unit leader in EMEA at Goldman Sachs, told CNBC’s Squawk Box on Thursday.

“We think there is almost no rationale for Arctic exploration,” he asserted, noting that while certain areas, such as the Russian Arctic, potentially have workable elements given that the location is much closer to the coast and easier to explore, other areas, such as Alaska, can fairly be considered more in the vein of vanity projects.

 “Immensely complex, expensive projects like the Arctic we think can move too high on the cost curve to be economically doable,” Della Vigna explained, pointing to a new “oil order” as represented by a much shorter and cheaper production cycle driven by the U.S.

What are the issues affecting OPEC’s decision on its current supply cut?  

Della Vigna sees rapid ongoing progress being made in power generation, where he says wind and solar energy systems in different regions are already perfectly competitive – even without subsidies – and are now taking more than 1 percent market share each year.

The Goldman Sachs specialist noted that these sources of renewable energy are clearly winning out against hydrocarbons. He also pointed to the oversupply of gas, a dynamic which he sees persisting for the next 5 – 6 years due to “massive” LNG (liquid natural gas) capacity coming onstream from the U.S. and Australia, as lowering the price of that energy source.

“We think cheap gas with more competitive renewables will be the perfect combination to lower the carbon footprint of the world and shift away a lot of the demand from coal. Coal is going to be the stranded asset,” he predicted.

Turning to other evolving energy systems, Della Vigna said that there has been a clear breakthrough with regards to electric vehicles.

“In China, it’s about 1 percent of current auto sales – it has gone through customer acceptance. Every time we see that happening, typically growth accelerates and we think we’re going to see that in electric vehicles,” he explained, before cautioning that the pedal isn’t flat on the metal for the industry quite yet.

“Bear in mind it takes 15 years plus to replace the car fleet. So it’s going to be a slow process,” he concluded.


21 Comments on "There’s almost zero rationale for Arctic oil exploration"

  1. Alice Friedemann on Thu, 23rd Mar 2017 11:36 am 

    Getting Arctic oil and natural gas will take decades

    Professor Tad Patzek on Oil in the Arctic

  2. BobInget on Thu, 23rd Mar 2017 11:58 am 

    Climate Change news:
    Arctic Warming:
    A global temperature rise of 1.5 °C (2.7 °F) above current levels would be enough to start the thawing of permafrost in Siberia, according to one group of scientists.[4][7] (Wikipedia)

    Without working pipelines Arctic E&P is simply impossible.

    Each summer fears of collapsing Alaskan pipelines
    grow stronger. Are Siberian pipelines as well prepared to deal with permafrost melt?

    I have a secret to share here.
    Watch climate in the Southern Hemisphere during ‘our’
    winter months. (this season showed record heat)

    Entire cities in Siberia are falling through melting permafrost. Oil markets will become believers when great hunks of pipeline turns to scrap.

    More news:
    Saudi Arabia wants Chinese wealth funds and state oil companies to take a stake in the Aramco IPO, with King Salman traveling to Beijing to make the pitch.

    That’s according to a recent Bloomberg report, though Chinese and Saudi official media have been silent on the issue. Instead, they have been stressing “enhanced cooperation in areas such as culture, economy, trade, technology, security and defense” as the purpose of Salma’s Beijing visit.

    Still, the timing of the king’s visit and the size of his delegation suggest something else is afoot – and something quite specific.

    “The king’s decision to tour infrequently visited countries did not come out of nowhere – it was driven by Saudi Arabia’s increasingly challenging economic situation,” says Xander Snyder. “He is trying to find more capital to sustain the regime and went looking for it in Asia in the form of participation in Saudi Aramco’s initial public offering (IPO).”

    Is it a good idea for Beijing to participate in the Aramco IPO? In theory, yes, for both sides; and for investors who will get on the bandwagon before the IPO make its market debut.

    For China, a stake in Aramco could cement its relationship with the large oil supplier, and allow Beijing to collect a dividend from its investment.

    For Saudi Arabia, China’s investment would be a vote of confidence in the Aramco IPO, by providing much-needed support for the IPO when it makes its debut next year.

    But in practice, China’s participation in the Aramco IPO and a host of other investments contemplated by King Salman’s delegation is a dangerous idea.

    For a simple reason: Chinese investments in frontier and emerging markets come with strings attached.

    That’s been the case with Sri Lanka and Pakistan, with Chinese ships and submarines showing up in the local ports to protect Chinese assets.

    That begs a host of questions.

    What would happen if Aramco’s assets are at risk? Will Beijing dispatch submarines to the Persian Gulf?

    What will China’s other major oil supplier do?

    What will China’s presence in the Persian Gulf do to US-China relations, already strained by trade and South China Sea disputes?

    The answers aren’t necessarily pleasant for either China or Saudi Arabia. That’s how a good idea turns into a dangerous idea.

    Saudi Arabia should rather look to US and Europe to support its Aramco IPO. They too are its customers, and have the funds, provided that interest rates stay low.

  3. Wildbourgman on Thu, 23rd Mar 2017 12:04 pm 

    Global warming might make drilling in the Arctic even easier. If the pipelines collapse on the tundra then the lack of sea ice could make FPSO’s a valid choice. We’ll see.

  4. Plantagenet on Thu, 23rd Mar 2017 12:48 pm 

    Without a global climate deal to reduce CO2 emissions, oil use will continue. Obama’s fraud of a climate deal didn’t include mandatory CO2 reductions—hence global oil exploration—including in the Arctic—–will continue.


  5. Anonymous on Thu, 23rd Mar 2017 1:58 pm 

    Hey retard, ‘obama’ is ancient history, or don’t you read the ‘news’?, or what passes for it anyhow, in the asylum you call a ‘country’.

  6. BobInget on Thu, 23rd Mar 2017 1:58 pm 

    If/when Yemeni Houtis armed with Iranian drones and medium range missiles …. (Iranian drones are attempting to ‘take-out’ Saudi anti missile sites)
    Iran will be able to eat away at Saudi exports at will.

    This proxy war is going into its seventh year. If Yemeni tribes people manage to land at least one missile on Saudi choke points, we may see an end to this madness.

  7. BobInget on Thu, 23rd Mar 2017 2:17 pm 

    Credit: NASA/GSFC Flickr (CC BY 2.0)

    Constant warmth punctuated by repeated winter heat waves stymied Arctic sea ice growth this winter, leaving the winter sea ice cover missing an area the size of California and Texas combined and setting a record-low maximum for the third year in a row.
    Even in the context of the decades of greenhouse gas-driven warming, and subsequent ice loss in the Arctic, this winter’s weather stood out.
    “I have been looking at Arctic weather patterns for 35 years and have never seen anything close to what we’ve experienced these past two winters,” Mark Serreze, director of the National Snow and Ice Data Center, which keeps track of sea ice levels, said in a statement.
    The sea ice fringing Antarctica also set a record low for its annual summer minimum (with the seasons opposite in the Southern Hemisphere), though this was in sharp contrast to the record highs racked up in recent years. Researchers are still investigating what forces, including global warming, are driving Antarctic sea ice trends.
    Sea ice is a crucial part of the ecosystems at both poles, providing habitat and influencing food availability for penguins, polar bears and other native species. Arctic sea ice melt fueled by ever-rising global temperatures is also opening the already fragile region to increased shipping traffic and may be affecting weather patterns over Europe, Asia and North America.
    The area of the Arctic Ocean covered by sea ice usually hits its winter peak in early to mid-March, as the freeze season ends with the re-emergence of the sun above the horizon.
    This year’s maximum was likely reached on March 7, the NSIDC said Wednesday, when sea ice covered 5.57 million square miles, the lowest in 38 years of satellite records. This area came in just under 2015’s maximum of 5.605 million square miles (the NSIDC slightly revised its numbers last summer, so 2015’s maximum actually ranks lower than 2016) and 471,000 square miles below the 1981-2010 average, an area larger than California and Texas combined.
    Arctic sea ice was also thinner this winter than in the past four years, according to data from the European Space Agency’s CryoSat-2 satellite.
    Much of the reason for this thinness and smaller ice area was the consistent warmth throughout the autumn and winter. Across the Arctic Ocean, temperatures during this period were about 4.5°F (2.5°C) above average, with parts of the Chukchi and Barents seas coming in at 9°F (5°C) above average. (The Chukchi Sea lies between Alaska and Russia, while the Barents Sea sits to the north of Scandinavia.)
    The Arctic was one of the clear global hotspots that helped drive global temperatures to the second-hottest February on record and the third-hottest January, despite the demise of a global heat-boosting El Niño last summer.
    That background warmth was amped up by repeated incursions of warm air brought by storm systems from the Atlantic. During one such episode in early February, temperatures above 80 degrees north latitude reached nearly 30°F (15°C) above normal winter temperatures of about -22°F (-30°C)

  8. Plantagenet on Thu, 23rd Mar 2017 2:58 pm 

    It shouldn’t surprise anyone that the Arctic is warming so rapidly. GCM calculations have predicted for decades that rising CO2 in the atmosphere would produce warming 2-5X greater at high latitudes then at middle latitudes.

    The way things are going we will see a “blue ocean” event in the Arctic next few years.


  9. Apneaman on Thu, 23rd Mar 2017 2:59 pm 

    Plant-tard, wouldn’t it be easier to just post a list of the dozen or so things that have gone wrong that are NOT Obama’s fault?

  10. GregT on Thu, 23rd Mar 2017 3:00 pm 

    “Without a global climate deal to reduce CO2 emissions, oil use will continue.”

    In the mean time we should all walk more, and fly 10,000km half way around the world to do so.


  11. Apneaman on Thu, 23rd Mar 2017 3:03 pm 

    Arctic Entering Its Hottest Period in 2.5 Million Years as Last Remnants of Laurentide Melt Away

    “The study authors further note that even if fossil fuel burning were to stop now, that the total loss of this ice would still occur. What this means is that some parts of the Arctic are now likely as hot or hotter than they were at any time in the last 2.5 million years. And, as the World Meteorological Organization noted so cogently this week, it also means that we’re heading deeper and deeper into uncharted territory when it comes to climate.”

  12. Plantagenet on Thu, 23rd Mar 2017 3:14 pm 


    I suggest that you make up the list of all the things that aren’t Obama’s fault. After all, you’re the one who came up with this peculiar idea.


  13. Plantagenet on Thu, 23rd Mar 2017 3:15 pm 


    What do you have against walking more? IMHO its pretty much common sense that riding a bike and walking are sensible things to do.


  14. GregT on Thu, 23rd Mar 2017 3:21 pm 


    What do you have against doing your part to limit CO2 emissions? Or do you need Obama to tell you what to do?


  15. rockman on Thu, 23rd Mar 2017 4:56 pm 

    “We think there is almost no rationale for Arctic exploration”. Spoken by a man who never got a paycheck for actually finding oil. But even with that lack of background he obviously understands the situation better then the folks who do this for a living.

    “…while certain areas, such as the Russian Arctic, potentially have workable elements…” Potentionally??? Apparently unable to do a 30 second Internet search to learn it is a reality. A knowledge void shared by Alice: “Getting Arctic oil and natural gas will take decades”. From

    “Big growth for Russian Arctic oil: Data from regional authorities show that oil extraction in the Yamal-Nenets Autonomous Okrug, the Nenets Autonomous Okrug and the Komi Republic in 2016 increased to a total of 57,6 million tons, a growth of more than 17 percent from 2015.”

    Or maybe Alice meant offshore Arctic oil production: Prirazlomnoye field is an Arctic offshore Russian oilfield. The field development is based on the single stationary Prirazlomnaya platform, which is the first Arctic-class ice-resistant oil platform in the world. Commercial drilling began in the spring of 2013. The field produced its 10 millionth barrel of Russian North Arctic Oil in March 2016. Prirazlomnoye field has reserves of 610 million barrels.

    Currently both Norway and Denmark on on the verge of beginning their Arctic exploration programs.

  16. Apneaman on Thu, 23rd Mar 2017 6:16 pm 

    There is more than enough fossil fuel in the Arctic to end all human problems. Won’t even need to drill for it. Gaia loves to share her bounty with her kids. She’s done it before.

    Methane Hydrate: Killer cause of Earth’s greatest mass extinction

  17. Apneaman on Thu, 23rd Mar 2017 6:44 pm 

    Happy Arctic graph of the day

  18. Midnight Oil on Thu, 23rd Mar 2017 7:23 pm 

    Mr Ap, How LOW will we go?
    Want to know fellow fossil fuel lovers?
    Read Dr Peter Wards book title, “Under a Green Sky”
    A report released by the U.S. Global Change Research Program, Abrupt Climate Change, said in December 2008 (during the Bush Administration) that warming in the Arctic could cause sea levels to rise substantially beyond scientists’ previous predictions and could result in massive releases of methane. The report said that the “rapid release to the atmosphere of methane trapped in permafrost and on continental margins” was among “four types of abrupt change in the paleoclimatic record that stand out as being so rapid and large in their impact that if they were to recur, they would pose clear risks to society in terms of our ability to adapt

  19. Anonymous on Thu, 23rd Mar 2017 10:42 pm 

    Hey plant-a-tard

    Why dont you provide evidence that any of the climate ‘deals’, such as they are, or are not, that been negotiated in the recent past, originated with someone called ‘obama’. At least to the extent that we could, at least with some degree of accuracy, be referred to as ‘obama’s climate deal’?

    I mean, you are the one making the peculiar claim ‘obama’ can be blamed for pretty much anything you can imagine. Not suggesting you have an imagination plantard, what you have that passes for one, is pretty limited and stuck on obama, but lets hear YOU provide some actual proof for your peculiar claims.

    I wont wait here while you gather that up, since you constantly pull shit pull of your ass on a regular, make that constant basis. Nor have you provided any evidence, or source, for all your previous equally obama-esque bullshit claims either.

    Cheerio moron!

  20. Nony on Fri, 24th Mar 2017 5:26 am 

    Granted, the current economic issues. But at 100+, the equation changes. At that point Arctic supply can help stop oil price from going from 100 to 200.

    Anyhow, if companies decide to invest money and drill in the Arctic, that is their funeral. Just get out of the way with your antigrowth, treehugger obstruction.

  21. Davy on Fri, 24th Mar 2017 5:57 am 

    Nony, our economy will not survive $100 plus oil not as-is at least. An alternative economy is not going to be pretty. You may see some gyrations to $100 but the reality of long term $100 oil in our current global financial reality is absurd. We have huge unfunded liabilities and debt levels. Little can change without consequences cascading throughout the economy. Oil is nothing without the economy. There is no modern economy without oil. The problem with you narrowly focused oil guys on this site is you have little business and economics background other than your narrow oil world.

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